Making an exit - efficient exit strategies for your small business

By Josh Hall

When you start a business you might not be thinking about how it ends –
but you should be.

An exit strategy is a key element of any business plan. This helps you
determine how your relationship with the business, and that of your
investors, will finish. It can have a dramatic impact on your future
financial situation. You need to be thinking about your exit strategy
from the beginning.

Last month we published an article on building a great investment
presentation. If you are seeking investment, you need to give a
clear picture of how those individuals will ‘realise’ their investment –
but you should also be considering how your own involvement might end.
Here we run down some of the most popular exit strategies for small
businesses.

Family succession

There are around 3 million family businesses in the UK, according to
figures from the Institute for Family Business. These firms are part of
the backbone of the UK economy, and some of them have been around for
five centuries.

Many people wish to pass their business on to a family member. Often,
entrepreneurs want to feel that they have kept their achievement in the
family, and they wish to see its benefits enjoyed by those closest to
them. Family succession can, however, be a fraught and complex process.
You need to make sure that the succession is properly managed in order
to avoid the many potential pitfalls. Read more in our guide to family
business succession.

Acquisition

Often, investors will make investments on the assumption that the
company with which they are dealing will eventually be acquired by
another business. This is a very popular exit strategy both for
investors and for business owners.

There have been many very high-value acquisitions in the tech sector in
recent years, as we explored in our recent infographic. This infographic illustrates one of the key advantages
of acquisitions as an exit strategy: the value of your business is
simply what it is perceived to be by the organisation acquiring it. In
the tech world, huge acquisitions have been made of companies with
comparatively few assets other than great brand equity. Acquisition is
therefore a very attractive proposition for agile, exciting businesses
with high growth potential – or, indeed, for businesses that are posing
enough of a threat that their competitors want to buy them out.

IPOs

An initial public offering, or stock market flotation, is a route that
is only open to very high growth businesses, but it is a potentially
very lucrative one. In this arrangement you issue shares, which are
tradable on a stock market like the London Stock Exchange. Successful
IPOs require you to build up significant interest in those stocks, and
the outlay can be significant; legal fees alone can run to hundreds of
thousands of pounds. However, for businesses in the right position, an
IPO can be a very powerful tool – as evidenced by the news that online
giant Alibaba, a representative of which joined our recent live
discussion, is planning a flotation.

Winding up

Finally, you should remember that there is no obligation for your
business to carry on. All things must run their course, and sometimes
entrepreneurs would prefer to wind the business up than to see it
continue. In this case, your assets will be disposed of and used to pay
your creditors, and the remainder will be split amongst shareholders.
This can be an excellent option for entrepreneurs looking to make a
clean break.

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